Importance of Corporate Social Responsibility in the Banking industry of Pakistan

Abstract

The main purpose of this study is to examine the relationship of corporate social responsibility (CSR) with financial performance (FP), financial inclusion (FI), and financial stability (FS) of conventional banks of Pakistan. The study used a structural equation modeling (SEM) technique on panel data for the period 2008-2020 using 18 conventional banks listed in the Security and Exchange Commission of Pakistan (SECP). SEM is considered as one of the best tools to identify multilevel relations. The result shows that CSR initiatives lead to an increase in financial performance, financial inclusion, and financial stability in conventional banks. The empirical findings further suggest that banks with higher CSR spending and disclosure have higher financial performance, financial stability and financial inclusion. Therefore, the banking industry may need to use CSR as an effective tool to improve financial inclusion, financial performance, and financial stability. The findings prove that corporate social responsibility initiatives are important to increase financial inclusion within economies. In addition, it also helps to improve workplace behaviors of banking industry as well.